Energy

The energy sector of Lithuania, based on the number of employees (about 14% of industrial employees), the total value of capital assets of energy enterprises (about 25% of the total assets of the country's enterprises) and the amount of expenses for the acquisition of energy resources, which are imported into Lithuania, is one of the most significant sectors in the country. The energy sector comprises interrelated energy systems (electricity, district heat supply, oil, natural gas, coal, as well as indigenous fuel and renewable energy resources), which consist of the entirety of enterprises and equipment intended for the extraction, generation, transformation, transmission, distribution and consumption of different energy resources.

On 10 October 2002 , the Seimas adopted an updated version of the Lithuanian National Energy Strategy. The Strategy provides for the energy development guidelines with regard to the decommissioning of Unit 1 of the Ignalina NPP by 2005 and Unit 2, by 2010. The Strategy lays down the main objectives of the Lithuanian energy sector for a period of 20 years. More specifically, it stipulates the following:

•  to ensure a reliable, secure least-cost energy supply causing minimum environmental pollution, and constantly enhancing the operational efficiency of the energy sector;

•  to liberalise the sectors of electricity and natural gas by opening the market pursuant to the requirements of EU directives;

•  to privatise the energy enterprises (due to be privatised) in the sector of natural gas transmission and distribution and the electricity sector;

•  to continue privatisation of oil refining and transportation companies;

•  to prepare for the decommissioning of the reactors of the Ignalina NPP, the disposal of radioactive waste and the long-term storage of spent nuclear fuel;

•  to integrate Lithuanian energy systems into the energy systems of the European Union within the next 10 years;

•  to further develop regional co-operation and collaboration with a view to creating a common Baltic electricity market within the next five years;

•  to achieve that the share of the electricity generated in the combined heat and power operation mode would account for at least 35% in the electricity generation balance at the end of the period;

•  to strive for a share of renewable energy resources of up to 12% in the total primary energy balance by 2010.

The updated Strategy took into account the main changes in the sectors of economy and energy, used the experience and information related to the planning and forecasting of the development of individual energy sectors, considered the energy development plans in Lithuania and neighbouring countries, and paid attention to the global trends in the area of environmental protection and market liberalisation.

On 1 July 2002 , a new Law on Energy came into effect. It regulates general energy activities (electricity, centralised heating supply, oil, natural gas, coal, indigenous fuel and renewable energy resources), energy development and management, energy and energy resources efficiency.

Electricity Sector

The key component of the electricity sector is electricity. Its reform was finished in 2001. As of 1 January 2002 , new public companies started their operation, including Lietuvos elektrine AB, Mažeikiu elektrine AB, Rytu skirstomieji tinklai AB, Vakaru skirstomieji tinklai AB; Lietuvos energija AB continued to operate. All of them made profit in 2002 and 2003.

Pursuant to the Government's programme, Vakaru skirstomieji tinklai AB was privatised in 2003 and Mažeikiu elektrine AB is still under privatisation.

In the year 2003, Lithuania produced 19.5 TWh of electricity (Table 2). The Ignalina NPP generated 79.5 per cent, thermal power plants generated 15.4 per cent, hydro power plants and the hydro pump storage plants generated 5.1 per cent. This showed an increase of 10 per cent, as compared to the previous year. The reason for this was the growth in electricity export. In 2003, Lietuvos energija AB sold 7.5 TWh of electricity in foreign markets. In comparison to 2001 and 2002, the export of electricity grew 1.9 and 1.2 times respectively.

Table 2

Electricity Balance, TWh

* Preliminary data.

The chart of net electricity consumption in 2003 is presented in Figure 6 .

Figure 6

In January 2002, the Law on Electricity came into effect. The law provides for the basic principles regulating the generation, transmission, distribution, and supply of electricity with account of the requirements of EU law. It also formulates the relations between suppliers of electric energy services and their customers, and established conditions for the development of competition in the electricity sector. The law stipulates that the country's electricity market shall be established in stages by gradually giving the right to the eligible consumer to conclude direct electricity purchase contracts with producers or independent suppliers. In 2002, the status of free customers was granted to 12 enterprises that had consumed more than 20 million kWh of electricity at one site in 2001. In 2003, 23 customers became eligible as they had consumed more than nine million kWh of electricity. The Government of the Republic of Lithuania adopted a Resolution whereby as of 1 January 2004 , the status of a free customer will be provided to customers that consume more than three million kWh of electricity during the previous year at one site of consumption. Plans are to have all customers eligible, i.e. free to choose a supplier, by 2007.

At present, the Lithuanian energy system is operating parallel with the Latvian, Estonian, Belarusian and Russian energy systems. Further work is being done in developing a common Baltic electricity market that would make it possible to make a better use of surplus electricity generated. In 2002, a memorandum was signed between the three Baltic bodies regulating the electricity-related activities. On behalf of Lithuania , it was signed by the National Control Commission for Prices and Energy. The memorandum lays down the principles of common market regulation. A draft Baltic Grid Code was developed that would regulate the technical part of operating grids to ensure the reliability of electricity supply.

In 2002, a feasibility study was developed on connecting the Lithuanian-Polish electricity systems. In 2003, a joint Polish-Lithuanian working group meeting took place in Warsaw which suggested that a project development company should be established. At present, an attempt is being made to agree on EU funding to implement the project. The connection of electricity systems will enable integration of the common Baltic electricity market into the West European electricity markets.

Nuclear Energy

Nuclear energy plays the key role in the Lithuanian energy sector. In 2003, the Ignalina NPP generated 15.5 TWh or 80 per cent of the total electricity produced in the country.

Nuclear safety when operating the Ignalina NPP, making preparations for its decommissioning and managing radioactive waste remains a sector priority. With a view to maintaining a proper nuclear safety level and bearing in mind the EU recommendations, the process of reorganising the Ignalina NPP was launched. A draft law, On Reorganising the State Enterprise Ignalina NPP into a Private Limited Entity (with the state as the only shareholder) was developed, approved by Government Resolution No. 1602 of 16 December 2003 and submitted to the Seimas. Pursuant to the Law on Electricity which aims at liberalising the electricity sector, units that were not directly related to the generation of electricity were separated from the Ignalina NPP. Five units of the Ignalina NPP were transformed into five new state enterprises. To prepare those enterprises for the free market, the Government adopted decisions ensuring the scope of work during the initial period of their operation.

On 3 July 2003 , the Seimas of the Republic of Lithuania passed the Law Amending Articles 14, 17, 25, 28, 31 and 32 of the Law on Nuclear Energy of the Republic of Lithuania , No. IX-1688. These amendments were made seeking compliance of the Law on Nuclear Energy with the EU law (Treaty Establishing the EAEC, Regulation No 3227/76) and implementation of the recommendations given by the European and International Atomic Energy Agency (IAEA) concerning the licensing of nuclear energy activities as well as compliance with the Law on the Supervision of Potentially Hazardous Installations. In addition to that, the procedure of approving projects of nuclear power plant, nuclear reactor, nuclear fuel and radioactive material (including waste) storage was subject to change and is no longer approved by the Government.

The Ignalina NPP Safety Improvement Programme (SIP-2) developed following the recommendations of Lithuanian and foreign experts is underway. In 2003, 26 measures of the programme were implemented. The programme spent 32.7 million litas. The lion's share was spent on the installation of the second diverse shutdown system at Unit 2, establishment of a spent nuclear fuel assembly transportation facility from Unit 1 to Unit 2, and installation works of a liquid radioactive waste cementation facility. To implement the latter measure, the Government of the Republic of Lithuania approved the project in May 2003 on the Ignalina NPP liquid radioactive waste storage which forms part of the facility. A tender was launched and a successful bidder identified to perform the works. Pursuant to the amendments to the SIP-2 approved by the Minister of Economy, the programme consists of 77 safety improvement measures.

Under the National Energy Strategy plans were made to decommission the Ignalina NPP and a special programme was implemented. On 8 May 2003 , the Government of the Republic of Lithuania adopted Resolution No. 573 whereby approving the Directions for Overcoming the Consequences of Complete Decommissioning of Unit 1 and Unit 2 of the State Enterprise Ignalina NPP. The Directions provided for both technical and social ways of solving the problems. With a view to cushioning the social and economic consequences of decommissioning the NPP, the Law on Additional Employment and Social Guarantees for the Employees of the State Enterprise Ignalina NPP was adopted. The law provided for assistance to Ignalina NPP employees made redundant due to the decommissioning. The works for designing thermal and gas boiler houses were started at the Ignalina NPP, a contract was concluded with contractors on the modernisation of the archive of technical documents, and tenders were launched to select a company to develop projects for the storage of nuclear fuel waste and management of solid radioactive waste.

An important achievement was ensuring the funding of Ignalina NPP decommissioning. Under the 2003 Treaty of Accession Protocol No. 4, On the Ignalina Nuclear Power Plant in Lithuania , the European Union made a commitment to allocate 285 million euro (at 1999 prices) during the period of 2004-06 in support of Lithuanian efforts to decommission the Ignalina NPP and modernise the Lithuanian energy sector. By the end of 2003, the State Enterprise Ignalina Nuclear Power Plant Decommissioning Fund had collected 241 million litas.

Implementation of the Radioactive Waste Management Strategy is underway. In order to establish the prospects of radioactive waste management, the Programme on Spent Nuclear Fuel and Long-Term Radioactive Waste Burial Feasibility Assessment was launched. In co-operation with Swedish specialists, a study of possible surface short-term medium and small activity waste repositories was developed. This work was started in the Maišiagala waste repository by developing an environmental impact and safety assessment programme and a technical project for the restructuring of the repository.

Heat Supply Sector

Around 75 per cent of the area of premises in residential buildings in Lithuanian cities and towns is heated by district heating systems. An advanced method of supplying district heating prevails in Lithuania but for a number of economic, technical and social reasons this method is not sufficiently effective and needs to be reorganised. Local district heating companies must be upgraded and where needed combined heat and power plants should replace the presently-operating boiler houses. The utilisation of local and renewable resources and household waste must be encouraged, and ecological technologies must be adjusted for heat production.

In accordance with the Law on the Reorganisation of the Special Purpose Company Lietuvos Energija , the entire district heating sector was separated from this monopoly and handed over to municipalities after being divided into six regional companies. Vilnius , Kaunas , Klaipeda , Šiauliai, Panevežys and Alytus regional district heating companies were established and districts willing to manage their heating independently were authorised to found district heating utilities. Thirteen such companies were founded while several hundred small heating companies, supplying settlements, companies and sometimes only a small number of residential buildings with heat operated alongside. Later on, regional heating companies will be divided into district companies on an annual basis.

Presently, the total book value of the assets of the heating sector exceeds 1 billion litas. The capacity of heat production sources in the country stands at 10500MW and the length of the heating network pipeline is about 2,400 km. Around 7,600 people work in local heating supply companies producing heating for more than 1.5 million of the population of the country. The most or 70 per cent of heating produced by district heating companies is sold to residents of multi-apartment houses. The characteristic feature of heating supply in Lithuania , i.e. the fact that it is supplied in one system and does not have inter-city or even international pipelines, makes the ensuring of heating supply to the country a major challenge.

The Ministry of Economy coordinates technical policy of heating sector development and prepares strategic guidelines on the national level seeking to develop a reliable, quality and the most economical way of supplying the heat, to open the way for competition among heat producers and supervisors of heating utilities in residential buildings and to legally regulate the relationship between the consumers and heat suppliers.

The Law on Heating Sector of the Republic of Lithuania was adopted in May 2003 to regulate state management of the heating sector, activities of heating sector entities, their relationships and interrelationships with heating consumers as well as responsibilities. The accompanying legislation requisite for the implementation of the Law on Heating Sector was also drafted and adopted.

Oil Sector

The oil sector has been functioning for many years now in a market economy environment and is nearly integrated into the market of European countries. The oil sector has four oil extraction companies operating as well as the oil refinery and transportation company Mažeikiu Nafta AB, the petroleum product transhipment terminal Klaipedos Nafta AB and more than 350 companies trading in petroleum products.

The share of petroleum products in the primary energy balance amounts to 26 per cent of the total amount of resources. In 2003, 2.3 million tons of petroleum products were consumed in Lithuanian energy and other economic sectors and 90 per cent of this amount was produced by Mažeikiu Nafta AB. Consumption of petroleum products is shown in Figure 7 .

Figure 7

Consumption of Petroleum Products, thousand tons

On the eve of Lithuanian EU integration intense and effective work was done to implement the directives regulated by EU legislation in the areas of environment, improvement of petroleum product quality and additionally to implement the programme for accumulating the stock of state petroleum products and crude oil. In order to ensure the measured stocking, management and consumption control of petroleum products and state stock of crude oil, in 2002 the Lithuanian Parliament (Seimas) adopted the Law on State Stocks of Petroleum Products and Crude Oil . In 2003, the implementation of this law resulted in accumulation of 60 per cent of the entire planned amount of petroleum product stocks. This means that at any time Lithuania has 60-day advance stocks of petroleum products consumed domestically.

The balanced and effective operation of Mažekiu Nafta AB is of utmost importance to the national economy. In 2003, the first stage of modernisation of this company was wrapped up with investments totalling 110 million dollars being made. After the company was upgraded the amount of pollutants emitted into the atmosphere was reduced and the quality and ecologic indicators of light fuel oil products were brought up to the level of the indicators set forth by EU directives. These products will be able to compete with their counterparts produced in European countries.

In 2003, the company refined 7.18 million tons of oil (Figure 8). The international accounting principles (US GAAP) showed company profit totalling around 230 million litas. About 40 per cent of company products are sold in Lithuania , with the balance being exported to Western Europe and other countries.

The year 2003 was important for the Butinge oil loading terminal operated by Mažeikiu Nafta AB. A total of 10.7 million tons of oil were loaded at the terminal. The highest export capacity of the terminal is 14 million tons of oil per year, while for oil imports the figure amounts to 6 million tons.

The market of liquefied petroleum gas has been liberalised in Lithuania since 1993. 231,000 tons of liquefied petroleum gas was consumed in Lithuania in 2003, including 151,000 tons for transport needs (nearly 212,800 tons were consumed in 2002, including 148,000 tons for transport needs).

Figure 8

Mažeikiu Nafta AB Oil Refining and Oil Transportation, thousand tons

The Klaipeda petroleum product terminal (Klaipedos Nafta AB) is one of the most modern terminals of its type in the Baltic region. The reverse capacity of the terminal is measured at 8 million tons of petroleum products, including 5 million tons of heavy and 3 million tons of light fuel oil. In 2003, 6.6 million tons of petroleum products were uploaded into tankers, including: 52.5 per cent of Mažeikiu Nafta AB petroleum exports, 20.5 per cent of Russian products and 26 per cent of products produced by Belarusian oil refineries.

Klaipedos Nafta AB posted a net profit of 22.5 million litas in 2003.

Presently, Lithuania has every technical capability needed to export and import oil and petroleum products from different world countries and sources, and is technically protected from breakdowns in petroleum product supply or other possible problems.

There were four private limited liability companies engaged in oil exploration and extraction in Lithuania . The companies extracted 0.39 million tons of high quality oil. The oil extracted in Lithuania is enough to cover 13 per cent of the national oil demand.

Gas Sector

Gas is the most effective organic fuel in a technological and ecological sense. In 2003, the share of natural gas in the national energy balance amounted to 26 per cent.

The Lithuanian gas market is regulated in line with the provisions of the European Union directives: movement towards liberalising the national gas market. Big consumers are given the right to choose their supplier, yet their choice is limited because there is only one external gas supply source. As of 31 December 2003 , there were 22 gas consumers with the status of free consumers entitled to choose their gas supplier, and they consumed 2,370.2 million m 3 of gas or 81.9 per cent of the total amount of gas consumed in Lithuania in 2003 .

In order to increase the reliability and safety of Lithuania 's natural gas supply, investigation work has been on-going at the Vaškai underground natural gas storage facility and is nearly complete. Lietuvos Dujos AB also prepared a project of a gas supply metering station to be located on the Lithuanian and Latvian border. The station should be built in 2004 (the value of works is around 9.3 million litas). The new project is to allow emergency gas supply from Latvia .

In 2003, 2,937.9 million m 3 of gas was imported to Lithuania from Russia by Gazprom AAB which is 8.4 per cent more than in 2002 (2,711 million m 3 ). Natural gas was bought from Gazprom AAB under the concluded natural gas purchase and sale agreements by: Dujotekana UAB (1728.3 million m 3 ), Lietuvos Dujos AB (436.0 million m 3 ) and Achema AB (773.6 million m 3 ), which used the gas for its own needs.

Besides the aforementioned gas companies, Haupas UAB started supplying gas directly to Druskininkai consumers in 2003 (over 4,000 m 3 ) under a contract concluded with Gazprom AAB.

In 2003, Lithuanian consumers consumed 2,894.3 million m 3 of gas or 8 per cent more than in 2002 (2,679.8 million m 3 ). The breakdown of gas consumption is shown in Figure 9 .

Figure 9

Breakdown of Gas Consumption, per cent

 

The long-time activity areas of the leading national gas company Lietuvos Dujos AB are import, transportation and sale of natural gas and supply of relevant services.

In 2003, Lietuvos Dujos AB took 28.2 per cent of the Lithuanian gas sales market, as compared to 21.7 per cent of the market in 2002. In the reporting year the company sold 828.2 million m 3 of gas directly to domestic consumers, including consumers subject to regulation (544.8 million m 3 ) and free consumers (283.4 million m 3 ) . 2,066.1 million m 3 of natural gas was transported inside the country and 569.8 million m 3 by transit to the Kaliningrad Region.

Continuing the implementation of the programme of the Lithuanian Government for 2001–2004, the year 2003 was the second stage of Lietuvos Dujos AB privatisation. The deal was finalised on 24 March 2004 with the signing of the share transfer act and other privatisation related documents. With privatisation of Lietuvos Dujos AB shares are governed as follows: Ruhrgas AG (Germany) – 35.49 per cent of shares, Gazprom AAB (Russia) – 34 per cent; the Lithuanian Government, which has its shares managed in trust by the State Property Fund – 24.36 per cent; and other persons – 6.15 per cent of shares.

Sector of Local Resources

The measures envisaged in the programme of Lithuanian Government for 2001-2004 are concerned with greater consumption of local and renewable energy sources. According to the National Energy Strategy, one of the main strategic goals of the Lithuanian energy sector is to achieve that the share of local energy resources in the primary energy balance would be 12 per cent in 2010 and be close to the requirements of European Union directives.

In 2003, the Ministry of Economy drafted the Law Amending the Law on Bio-Fuel. The main goals of this draft law were to provide favourable conditions for bio-fuel production and usage, to reduce the dependency of the national energy sector on fuel produced from oil, to increase the utilisation of local energy resources, to boost security of energy resources supply and implement the Directive 2003/30/EC of the European Parliament and of the Council of 8 May 2003 on the promotion of the use of biofuels or other renewable fuels for transport . This law was adopted by the Lithuanian Parliament on 5 February 2004 (Official Gazette, 2004, No. 28-870).

The Ministry, along with the state company Energy Agency VI, using support from foreign governments, implemented several demonstration projects in 2003 illustrating the opportunities offered by effective use of local and renewable resources. For instance, support from the Swedish Energy Agency was used to upgrade the Taurage Remeks boiler house with new boilers incinerating firewood, wood chips and sawn wood. Also, Swedish funding through the Swedish Energy Agency was used in reconstructing the heating utilities of the Kacergine Children's Sanatorium by installing a sun collector for heating water and a wood burning boiler house.

Maintenance of Potentially Hazardous Equipment

The Lithuanian Government, by its Resolution No. 817 of 29 June 2001, appointed the Ministry of Economy responsible for the organisation of maintenance of all types of steam and water heating boilers and related machinery, all types of pressure vessels and related machinery, all types of pressure pipes for hazardous materials, pressure steam pipelines and hot water pipes and related equipment.

To date two public organisations, Technikos Priežiuros Tarnyba ( Technical Maintenance Service ) and Tuvtechnika, have been authorised to inspect the technical state of all potentially hazardous equipment. Technikos Priežiuros Tarnyba has been accredited in line with the requirements of the LST EN 45004 standard, while the other institution has begun accrediting procedures.